Fast Future Study for ACCA - appendix - 100 Drivers of Change

ACCOUNTANCY FUTURES ACADEMY

100 drivers of change for the global
accountancy profession: appendix

This report was writen for ACCA by Fast Future.

About ACCA
THE ACCOUNTANCY FUTURES ACADEMY
ACCA (the Association of Chartered Certified
Accountants) is the global body for professional The Accountancy Futures Academy contributes to
accountants. We aim to offer business-relevant, first-choice ACCA’s programme of research and insights with
qualifications to people of application, ability and powerful visions of the future. It provides a
ambition around the world who seek a rewarding career platform to look forward, to tune into the
in accountancy, finance and management. emerging trends and discussions in the global
business and policy spheres and the latest reforms
We support our 154,000 members and 432,000 students facing the world of finance.
throughout their careers, providing services through a
network of 83 offices and centres. Our reputation is By looking to the future it helps the profession
grounded in over 100 years of providing world-class stay at the cutting edge. The Academy’s work
accounting and finance qualifications. We champion fosters fresh thinking and innovative discussions,
opportunity, diversity and integrity, and our long identifies the barriers to and facilitators of
traditions are complemented by modern thinking, tomorrow’s successes, and identifies the potential
backed by a diverse, global membership. By promoting strategies that will enable business and finance to
our global standards, and supporting our members navigate the choppy waters that lie ahead.
wherever they work, we aim to meet the current and
future needs of international business. www.accaglobal.com/ri
About IMA®
IMA® (Institute of Management Accountants), the
association for accountants and financial professionals in
business, is one of the largest and most respected
associations focused exclusively on advancing the
management accounting profession. Globally, IMA
supports the profession through research, the CMA®
(Certified Management Accountant) program, continuing
education, networking, and advocacy of the highest
ethical business practices. IMA has a global network of
more than 60,000 members in 120 countries and 200
local chapter communities. IMA provides localized
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About Fast Future
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forces and ideas that could shape the competitive
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changing world. These insights are used to help clients
develop innovative strategies, create disruptive business
models and define practical actions to implement them.

© The Association of Chartered Certified Accountants,
September 2012
2010

In this appendix to the main report, each of the 100 drivers are presented with a
short description as well as a time frame for possible impact, stating when the
experts think it could affect at least 20% of the profession globally.

For each driver, its possible implications for, or impact on, business and
accountancy and, in particular, the key questions and uncertainties for the
accountancy profession are identified.

100 Divers of Change for the Global Accountancy Profession,
ACCA, September 2012

In this study, professionals working in and close to the accountancy
profession identify 100 drivers of change shaping the landscape for
businesses and profession accountants over the next decade.
ACCOUNTANCY FUTURES ACADEMY

100 drivers of change for the global
The potential impacts and 10 resulting imperatives are explored.
accountancy profession Opportunities are identified for accountants to adopt a more strategic
and trusted role.

available from
http://www.accaglobal.com/en/technical-activities/technical-library.html

This report was writen for ACCA by Fast Future.

Appendix contents

A1: ECONOMY 44 27. The workplace expectations of Generations Y, Z and beyond 70

1. Stability of the global economic infrastructure 44 28. Level of female participation in the workforce 71

2. The level of economic growth 45 29. Cost and ease of access to higher education 72

3. Public attitudes to pure capitalism 46 30. Uptake of online learning models in education 73

4. Consideration of alternative economic perspectives 47 A4: BUSINESS 74

5. Total scale and distribution of global inequality and unmet needs 48 31. Capitalism next: future governing business and market paradigms 74

6. Globalisation v protectionism in times of economic uncertainty 49 32. Business leader responsiveness to change and disruption 75

7. Standing of the US dollar as the global reserve currency 50 33. Quality and availability of the global talent pool 76

8. Notions of value and currency 51 34. Influence of emerging financial centres 77

9. Broadening measurement of business value and progress 52 35. Choice of global business languages 78

10. Impact of BRIC market development on global accountancy firms 53 36. Scale of global mergers and acquisitions (M&A) 79

11. Freedom of mobility for global labour 54 37. Extent of foreign direct investment in developed and developing
economies 80
12. Extent of mergers of international stock exchanges 55
38. Scale of reverse innovation flow from emerging economies to the
13. Proportion of knowledge-creation activities as a share of the economy industrialised world 81
at the national and global level 56
39. Speed and duration of business cycles 82
14. Stability of national revenue bases 57
40. Experimentation with and adoption of new business models 83
15. Manageability of national and international debt 58
41. Crowdsourced funding for innovation: the consumer as investor 84
16. Level of investment required to maintain national physical infrastructure 59
42. Level of complexity in business 85
17. Number and impact of micro-businesses on the overall health of the
economy 60 43. Adoption of integrated systems thinking to manage business complexity 86

A2: POLITICS AND LAW 61 44. Living wills for businesses 87

18. Focus of global governance institutions 61 45. Enterprise risk management capability 88

19. Rate of democratic transition 62 46. Evolution of corporate governance regulation and practice 89

20. Level of international political volatility 63 47. Extent of social entrepreneurship in social and business sectors 90

21. Pace and extent of cultural globalisation 64 48. Scope and diversity of expectations of external stakeholders 91

22. Governance and delivery of outsourced public services 65 49. Pressure to manage corporate reputation as part of business strategy 92

23. Volume and complexity of legal regulation 66 50. Level of corporate commitment to social responsibility, investment,
philanthropy and volunteer work 93
A3: SOCIETY 67
51. Use of cash for financial transactions 94
24. Scale and distribution of global population growth 67
52. Management of accountability and compliance within the firm 95
25. Spread of cultural diversity in society and the workplace 68
53. The future role of intermediaries 96
26. Workforce age structure 69
54. Emergence of new industry sectors and professions 97

48

A5: SCIENCE AND TECHNOLOGY 98 A7: THE PRACTICE OF ACCOUNTING 124

55. The digitisation of work 98 81. Defining the scope of the accountant’s role 124

56. The use of personal technology in business 99 82. Size and complexity of the CFO’s remit 125

57. Impact of the internet and personal technology upon attention spans, 83. Non-financial information and integrated reporting 126
learning, and knowledge retention 100
84. Clarity in financial reporting and defining the audit function 127
58. Business impact of social media 101
85. Balance between external financial accounting and internal
59. Ease of internet access 102 managerial accounting 128

60. Adoption of cloud computing by business 103 86. Internal audit management 129

61. Creation and valuation of digital assets 104 87. Changing structures and business models for accounting firms 130

62. Cybersecurity challenges for business 105 88. Opportunities arising from adoption of global regulation 131

63. The future of digital publishing 106 89. Evolution of the global accounting supply chain 132

64. Big data: the development and exploitation of large organisational 90. Adoption of globally accepted accounting standards 133
databases 107
91. Impact of size-specific business regulation upon accounting practices 134
65. Data mining and predictive analytics 108
92. Rate of adoption of XBRL as an accounting data standard 135
66. ‘Intelligent’ accounting systems 109
93. Importance of intangible assets in company valuation 136
67. Scale of business opportunities associated with augmented and
virtual reality 110 A8: THE ACCOUNTANCY PROFESSION 137

68. New industries and production models 111 94. Societal expectations and definitions of accounting 137

69. Advances in genetic science 112 95. Flexibility, suitability and cost of accountancy training 138

70. The role of genetics in personalised health care 113 96. Accounting skills capacity in transitional economies 139

71. Advancements in brain science 114 97. Level of entrepreneurial skills in the accountancy profession 140

72. Impact of nanotechnology advances across business sectors 115 98. Public perception and attractiveness of the accountancy profession 141

73. Impact of advances in robotic science across business sectors 116 99. Establishment and recognition of accountancy associations in
developing markets 142
A6: ENVIRONMENT, ENERGY AND RESOURCES 117
100. Impact of competition from entrants outside the profession on the
74. Global climate change 117 provision of accounting services 143

75. Global competition for limited natural resources 118 ENDNOTES 144

76. Carbon tax and other environmental market mechanisms 119

77. Level of trade in environmental finance markets 120

78. Extent of eco-literacy, green practices, and ethical consumption
in business 121

79. Developing materiality of biodiversity impacts on business 122

80. Scale of take-up in alternative energy by business 123

100 DRIVERS OF CHANGE FOR THE GLOBAL APPENDIX CONTENTS 49
ACCOUNTANCY PROFESSION: APPENDIX

A1: Economy

1. Stability of the global economic infrastructure

DESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
ACCOUNTANCY PROFESSION
The global economy, trade and financial flows are dependent
on a complex underpinning infrastructure that comprises a Uncertainty will be a dominant paradigm for the
range of key agreements, standards, systems, checks, decade ahead.
balances and governance frameworks. The stability of this
infrastructure has a direct bearing on global business Businesses will increasingly need to factor in the potential for
confidence, investment and spending. partial or total collapse of financial and trade infrastructures
in their strategic and financial planning.
Clear strains are already evident in the global financial
system. For example, the sovereign debt challenges facing Businesses must consider how the risk of partial or total
many European nations are putting pressure on the current infrastructure collapse would affect thinking on the choice of
operating models of both the European Monetary Union and a company headquarters and financial jurisdiction.
the wider European Union. Some analysts even predict that
the very nature of capitalism itself may undergo more than Questions arise as to how the collapse of the global banking
one transformation in the next 10 to 15 years. system would affect organisations, the availability of credit
and the accounting process.
As a result of these pressures, much of the global governance
infrastructure and its supporting systems and processes may IMPACT TIMEFRAME
need to be redefined or completely transformed. This will
require strong intergovernmental and multilateral 1–3 years
cooperation among countries in order to establish a
sustainable set of interconnected systems that can support KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
the global economy through its transition over the next 10 to ACCOUNTANTS
20 years.
What would widespread government-imposed austerity
measures mean for accountants, especially those in the
public sector?

Would the accountancy profession need to grow to handle
the necessary cuts in public spending or would its numbers
be significantly reduced as part of those cuts?

What financial mitigation strategies should and could be
adopted to cope with the potential collapse of the Eurozone?

What advice might the accountancy profession have to offer
to governments and global regulators on the design of the
future global economic system?

How can the profession show leadership during times of
economic instability?

50

2. The level of economic growth

The level of economic growth is a critical driver in any
economy. Growth expectations influence business A prolonged period of negligible or non-existent growth
confidence, consumer spending, government planning and could force governments and businesses to rethink
budgeting, and management of the micro and macro fundamentally their strategies and economic models and
economy. Economists’ views vary on both the likely level of would almost certainly lead to major disruption in the
growth over the coming years, and even whether growth economic and financial system.
remains a realistic and viable option in a turbulent world.
While the majority of economists continue to forecast some If growth slows even more or remains sluggish, the
level of growth, an emerging view is that constant economic importance of accountancy may increase, as accountants
growth can no longer be assumed, and we may have to think could be expected to help maximise the financial output
about and prepare for a world with zero or negative growth. achieved from a dwindling supply of resources.

The Economist Intelligence Unit (EIU) predicts that the Lower levels of economic growth could lead to a closer focus
Eurozone as a whole will return to growth in 2013, with an on the exploration of emerging markets and virtual
average annual growth in real GDP of around 0.8% between world opportunities.
2012 and 2016.1 Meanwhile, the US and the UK are predicted
to see average real annual GDP growth of around 2.1% and Firms might need to adapt their business models to reflect
1.1% respectively over the same period.2 The EIU also predicts new pricing models, eg small margins spread over a large
that the BRIC economies (Brazil, Russia, India and China) will number of clients.
continue to enjoy comparatively rapid growth rates, with
China and India projected to grow on average by 8.1% and Countries may have to adopt new national aims and
7.9% in real GDP annually between 2012 and 2016.3 performance indicators that replace traditional governmental
goals of economic growth.
Conventional wisdom and assumptions on the prospects of
growth are increasingly being challenged. A radical long-term IMPACT TIMEFRAME
economic view, taken by economists such as Richard
Heinberg, is that we could be about to witness the end of 4–5 years
economic growth as we have known it.4 Heinberg and others
argue that increasing stresses on the supply of key finite KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
energy resources, such as oil and natural gas, combined with ACCOUNTANTS
rising prices, will constrain the potential for continued global
economic expansion. Heinberg predicts that, in this resource- What role can accountants play in helping businesses ‘future
constrained world, economic growth will become a zero-sum proof’ themselves against volatile, uneven or persistently
game, where growth for some will be achieved only at the low growth?
expense of other regions, nations, or businesses.5
Are accountants developing the skills required to respond to
The challenge for policymakers and economists is learning a range of economic and market scenarios and modelling
how to plan for possible scenarios ranging from continued their financial impacts?
growth through to a future where progress is still made, but
within a zero or negative growth economic model.6

100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 51

3. Public attitudes to pure capitalism

DESCRIPTION Remuneration packages may come under close public
scrutiny and audit procedures will be subject to heightened
In the wake of the global financial crisis (GFC), attitudes to media interest.
capitalism and the capitalist system appear to have become
more polarised, particularly as regards the Anglo-American There is potential for a tighter regulatory environment and
model of capitalism. Some have argued that while the system transaction taxes (ie Tobin Tax).
has its flaws, it is still functioning effectively and is the best
mechanism for driving growth and wealth distribution. Others Attention will be paid to ‘footloose’ firms, the level of local
believe that the system is in need of a fundamental rethink to taxes paid by global businesses and the motivation for
prevent future crises and ensure a better deal for the poorest relocation decisions.
in society.
A potentially growing trend is a move away from the maximisation
Those arguing the need for total reform point to continuing of shareholder value as the key business objective towards a
public antagonism towards financial services and to focus on wider stakeholders’ interests, even in countries that
developments, such as the occupation of public spaces from have traditionally been shareholder focused.
Wall Street to London, as clear indicators of the level of
dismay at the global economic system. They contend that Disillusionment with the current form of capitalism could
the current system has not addressed global poverty, and has result in the revitalisation and reformulation of alternative
indeed served to exacerbate social inequality, increased economic models based on some hybrid of communist or
environmental risks and created enormous public socialist principles.
budget deficits.
IMPACT TIMEFRAME
Public opposition to the current model of capitalism has led
to social unrest in some countries, and a loss of support for 1–3 years
strongly pro-business governments in other cases. These
worldwide concerns about income disparity created by KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
unfettered capitalism and deregulation have led to growing ACCOUNTANTS
calls for ‘solutions that serve the 99%’.
What impact will public concerns have on expectations of
The challenge facing many developed-economy governments, corporate reporting?
in particular, is how to balance the demands for reform from
How can accountants be equipped to advise companies and
the voting public, with the need to attract and encourage the
governments on more balanced policies that address the
private sector wealth-creators who can help drive growth and
concerns of multiple stakeholders and reduce
economic recovery.
income disparity?
IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE What role will the accountancy profession play in ensuring
ACCOUNTANCY PROFESSION that key performance indicators for state services are met?
Will country policies on business regulation and personal
Not only may standards of behaviour become stricter but, in
taxation influence accountants’ decisions on where to work?
the ‘show me’ world of tomorrow, business could also be
expected to demonstrate it is meeting public expectations by How can accountants distance themselves from the public
reporting to the world on its actual behaviour, eg on carbon criticism faced by other key players in the capitalist system?
footprint, diversity and actual taxes paid.
Can accountants develop measurement systems that are
capable of valuing softer factors beyond money?
Concepts such as justice and fairness could be included in
the reporting expectations being placed on business. Will accountants be able to operate in systems that deal with
estimates of abstract concepts rather than the hard matters
Criticism levelled at business leaders, and finance in of cash and P&L?
particular, could create a hostile social environment
for accountants. Can accountants leverage their reputation as ‘trusted
measurers’ on behalf of society?

52

4. Consideration of alternative economic perspectives

The financial crisis has offered a chance for nations to explore
new economic perspectives and models traditionally A serious examination of alternative economic perspectives
neglected by mainstream economic thought. A serious by firms and nations could lead to a period of economic
examination of these perspectives could help reformulate the experimentation, whereby new business and working models
global economic system along more environmentally could be trialled.
sustainable and equitable lines, and prevent the reoccurrence
of further financial collapses. Accountants could play an important role in a closed-loop
economic model, by keeping track of an organisation’s assets
One such perspective is Collapsonomics, which is the study and ensuring that all forms of waste are recycled.
of economic and state systems at the edge of their normal
social and economic function. The study of systems on the IMPACT TIMEFRAME
verge of or in collapse could help economists and
policymakers to construct preventative measures to avoid the 1–3 years
destructive feedback loops and vicious cycles that can lead to
collapse.7 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
An alternative perspective is Closed Loop Economics, which
takes its inspiration from biological systems in which nutrients How can accountants make use of the ideas generated by
are used in a circular system, so that all waste is reinvested.8 A alternative economic perspectives to provide innovative
circular economy would aim for the elimination of all waste strategic financial advice?
through the superior design of materials, products, systems
and, within this, business models.9 What might be the impact of an increasing overlap with
science and mathematics on the practice and study
The disquiet with most economists’ failure to predict the of accountancy?
financial crisis and the wide range of divergent views about
how best to reignite the global economy could lead to What new, alternative economic perspectives could be
growing calls for other sciences to contribute to the field. generated from sources beyond accountancy?
For example, mathematicians, biologists and physicists all
study complex systems and algorithms whose behaviour may
offer better insights into the behaviour of markets and
economies than traditional economic tools.


5. Total scale and distribution of global inequality and unmet needs

In its 2012 report on global risks, the World Economic Forum
cited ‘severe income inequality,’ as the primary threat facing Polarisation of consumer markets into luxury and budget
the world in the next ten years.10 The OECD notes that there is sectors is becoming a distinct possibility in many countries.
a growing body of research that indicates that higher income
inequality within countries correlates with higher Social and political stability of key markets could become
unemployment, higher crime rates, lower average health, increasingly important factors in analysts’ assessment of a
weaker property rights, limited access to public services, firm’s prospects.
lower social mobility, more social unrest, and less trust within
and across the society, leading to more fragile democracies.11 Margins within many industry sectors may be constrained,
resulting in consolidation.
The Gini coefficient, a measure of the concentration of wealth
within an economy and thus of inequality, is set to rise in IMPACT TIMEFRAME
many major economies. A coefficient of 1.00 (100%)
represents absolute inequality whereby one person owns all 4–5 years
the wealth and 0 represents absolute equality.
KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
South Korea is the only rich country that has succeeded in ACCOUNTANTS
reducing inequality during the last two decades. Oxfam
reports that of the emerging economies only Brazil, Argentina How might social and political instability be factored into risk
and Mexico have done so, though their overall level of assessments of enterprises?
inequality remains high.12
How might accountants address the unmet needs of those
Forecasts from Euromonitor suggest that between 2011 and outside the mainstream?
2020, Pakistan will see the highest relative increase in its Gini
coefficient, rising from 0.389 to 0.417 as a result of a high How might global inequality ultimately affect the markets in
poverty rate and a growing rural-urban divide. Other which global financial services players choose to operate?
countries projected to see significant increases in
income inequalities include Norway, South Korea, India,
Canada and the UK.

The UK’s Gini co-efficient is projected to rise from 0.337 in
2011 to 0.35 by 2020. Despite robust economic growth,
China’s Gini coefficient is forecast to reach 0.521 by 2020, up
from 0.516 in 2011. Meanwhile, income distribution in Latin
American countries, including Brazil and Mexico, is expected
to continue improving.13

54

6. Globalisation v protectionism in times of economic uncertainty

Market-driven mechanisms and globalisation are seen to have
opened up the world to businesses and brought increased Uncertain economic futures create both opportunities and
prosperity and well-being to the world at large. These challenges for domestic firms.
enablers have improved the overall living standards of many
developing nations by increasing economic growth. This ‘free A change in a host nation’s attitudes towards foreign firms
global market’ has also enabled the efficient and effective could lead to a tightening of regulations around investment
use and allocation of resources to achieve enhanced requirements and repatriation of profits.
economic outcomes.
Regular country-risk assessment will become an increasing
Faced with continued economic uncertainty, countries are priority if protectionist tendencies increase.
experiencing more intense competition among themselves
for resources, investment, talent and export markets. There Continuous changes in the speed and scale of fiscal
are signs that these competitive pressures could force regulation and legislation will affect accounting processes,
countries to look inwards and put the short-term concerns financing approaches, the complexity of reporting
and needs of their domestic populations ahead of those of arrangements and the required skill-sets.
the global economy. Could this spell an end to globalisation
or might there be further integration? While globalisation and IMPACT TIMEFRAME
free trade agreements proliferated at a time of growth,
protectionism is no longer a taboo subject in the circles of 1–3 years
power. This comes at a time of increasing criticism of free
trade, and concerns over individual nations’ exposure to KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
unstable global economic conditions. ACCOUNTANTS

Some countries outside the Euro-American nexus have How effective are accountants’ mechanisms for spotting
already displayed signs of adopting increasingly protectionist potential changes to attitudes or legislation that could
measures by, for example, restricting export supply to push directly affect the ability to trade in particular markets?
up the global prices for certain commodities. Already, Russia
has announced a limit on its oil exports and a cessation of Could accountancy firms, if asked to help sustain Western
grain exports and China is limiting exports of rare earth protectionism, face a backlash and restrictions if they attempt
resources and access to its oil.14 to operate in other global markets?

How might increased protectionism affect the internationalisation
of business and trade and the accountants working in
these fields?


7. Standing of the US dollar as the global reserve currency

A critical enabler of global trade is the notion of a strong
global reserve currency, used as the basis for international Uncertainty surrounding the dominant global currency could
pricing of a wide range of commodities, goods and services. create difficulties in the valuation of goods and services.
The reserve currency is held widely by nations and
corporations as part of their foreign reserves. The US dollar Multinational businesses will increasingly have to consider
has served this purpose since the Second World War. accounting in multiple strong global currencies.

In the wake of global financial turbulence and continued Valuable non-renewable resources (particularly oil) and other
economic uncertainty in the US, the role of the US dollar as commodities could increasingly be priced in other currencies
the global reserve currency is increasingly being called into such as the yuan rather than the US dollar.
question. The shift in global financial power to the East is
already being reflected in the broadening range of global Businesses will face uncertainty over the stability of
currencies being held by countries around the world. exchange rates.

Some analysts suggest that the commitment in China to Currency hedging will become an increasingly fine art and
liberalise its capital and current accounts will accelerate high-risk activity, as markets anticipate potential shifts away
demand for yuan globally and could lead the yuan to become from the US dollar to other reserve currencies.
a major reserve currency in the next decade. Others suggest
that a successor to the current euro – with fewer but stronger IMPACT TIMEFRAME
members – could overtake the US dollar to become the
world’s most widely held reserve currency over the next 4–5 years
10 years.
There is a risk that any individual currency aiming to serve as a ACCOUNTANTS
global reserve currency could be susceptible to volatility and
speculative attacks, and be unduly influenced by the policies Would multinational firms move to publishing their accounts
of the country whose currency serves as the in multiple currencies if the US dollar’s standing as a global
super-sovereign reserve. reserve currency were challenged by currencies such as the
euro or yuan?
The International Monetary Fund (IMF) is considering creating
a list of currencies that could serve collectively as a reserve. Would a move to adopt the yuan as a global reserve currency
This could avoid the pitfalls of a single reserve by diversifying lead more firms to publish their accounts in yuan under
the currencies that can be drawn upon, ensuring no single Chinese accounting standards?
currency dominates globally.

56

8. Notions of value and currency

The effective functioning of national and global trading
systems requires commonly accepted notions of value and Demand for new measurement systems may emerge if money
currency that perform as a universal mechanism through is no longer the sole common denominator or measurement unit.
which goods and services can be bought and sold. In an
electronic world, the future of money as a token of exchange P2P and business-to-business platforms that eliminate the
may alter radically. Concepts of what constitutes money may intermediary role could lead to far less dependency on banks.
change as well as what is valued, how it is measured and what
will be important to individuals, communities, businesses, There could be a rise in small and micro-business start-ups
and governments. trading in different forms of currency – such firms might be
rated as ‘high risk’ using traditional assessment techniques.
Examples of transformations of the conceptual notion of
money, debt and currency and new modes of value can be Changing paradigms around who is creditworthy and a move
found in a number of existing and proposed exchange towards ‘inclusion led’ finance and banking may bring many
systems, for example: more people into higher economic strata, which could be
good for business and trade generally.
• the proliferation of virtual currencies, such QQ in China,
which can increasingly be used to purchase goods and Value circulating in the system without being recorded as
services in the physical world auditable currency could create massive complexity for tax
regulators and revenue collection agencies.
• local (sub national) currencies – essentially tradable
vouchers designed to encourage spending in the local New adaptive tax systems could emerge that would be able
economy, eg the Brixton and Lewes pounds15 to account for these new modes of value exchange and
extract some form of tax payment back to the state.
• time banking, built on reciprocal exchange of services and
‘time’ rather than currency IMPACT TIMEFRAME

• peer-to-peer (P2P) credit networks, where individuals who 10+ years
trust each other transact using mutual credit accounting,
rather than money KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
• the emergence of ‘guarantee societies’ managing a
two-way system of community credit (lifting from and How will the finance function account for such non-financial
adapting the micro credit model, where pools of users transactions and the resulting assets and liabilities
mediate between the lenders and borrowers) for business?

• trading units, ie tokens redeemable in energy resources How could accountants use their experience and insight to
that are not connected to income or production innovate systems even further to create new non-financial
mediums of exchange?
• hybrid forms of gift and market economies – a society
where the process of giving away valuable goods and Will the range of skills required by accountants need to
services without explicit agreement for immediate or expand even further to reflect the demand for expertise in
future rewards, mixes with the traditional supply and these ‘money 3.0’ paradigms and new methods of exchange?
demand price-based system of the market economy.


9. Broadening measurement of business value and progress

How we assess value, progress and performance for business
is increasingly influenced by the range of measures being How might the reporting requirements on global business
adopted for country comparisons. This range of comparative evolve to take account of wider societal measures
national measures is expanding rapidly to take account of of progress?
non-financial measures of development encompassing
everything from innovation to happiness. As the scope of Will the challenge of presenting this broader more integrated
global businesses become more far-reaching, there is a picture of performance – including non-tangible measures
growing view that multinationals should be measured on like resilience and talent – be seen as the role of the
similar indicators to nations and cities. finance function?

Institutions such as the UN, the IMF, the World Bank and a Could this present competitive opportunities for
range of other bodies now compare countries, regions and organisations that successfully demonstrate positive
cities on an increasingly holistic set of measures. These measures in employee happiness or environmental
comparative indicators range from broad economic measures performance – making them more attractive to stakeholders,
such as GDP growth and unemployment through to factors as investors and customers?
diverse as health, innovation, entrepreneurship, trust,
resilience, talent, happiness, sustainability, and environmental Could businesses that lag behind on the implementation of
performance. and performance against these ‘new measures’ be subject to
increased taxes and compromised reputations?
An example of these broader measures of progress that has
reached the mainstream is the UN Human Development IMPACT TIMEFRAME
Index (HDI),16 which measures development progress by
combining indicators of life expectancy, educational 4–5 years
attainment and income into this composite measure.
ACCOUNTANTS

How will such changes affect the fundamental role of
accountants in business?

How will financial and non-financial information be presented
and weighted in annual accounts?

Will non-financial data be perceived as being of lower
importance?

What are the training implications if accountants are to be
prepared effectively to take on this far broader
reporting role?

58

10. Impact of BRIC market development on global accountancy firms

The global economy is re-balancing. Traditional markets and
zones of economic and political power are experiencing Western accountancy firms must ensure that they develop the
considerable turbulence, while new centres of influence are appropriate cultural awareness of business practices, service
emerging. This shifting landscape will continue to create both delivery expectations and knowledge of the regulatory
opportunities and challenges for global accountancy firms. context to compete effectively in BRIC countries.

The BRIC economies are becoming increasingly important as Economies such as China and India have significant
markets in their own right and as sources of future differences in corporate culture and client expectations with
competition for the traditionally dominant economies. These regard to the conduct of commercial activity and the delivery
nations, and India and China in particular, represent the of business services. Western accountancy firms are likely to
fastest-growing among the emerging large economies need to adapt their practices and employ local or hybrid staff
globally. They are becoming increasingly similar, in terms of who are better able to meet these expectations in
economic power, to the older industrial economies with which BRIC economies.
they are now competing. For example, in 2012, Brazil
overtook the UK to become the sixth-largest global economy New global accountancy firms may emerge from the BRIC
in GDP terms.17 economies (although they may not choose to compete in all
major global markets).
As the 21st century proceeds, growing economic power will
be reflected in the increased significance of domestic BRIC IMPACT TIMEFRAME
firms and the markets they create for services such as
accountancy. The BRIC nations are also nurturing domestic 6–10 years
accountancy firms that will compete increasingly at the global
scale with those from more established economies. These KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
developments will create significant drivers of change in the ACCOUNTANTS
competition for global market share.
How might the nature and expectations of accountancy
Of particular interest is the potential for established service provision change in emerging markets?
multinationals from mature economies to start to transfer part
or all of their business to accounting firms from the BRIC In an increasingly crowded global marketplace, what is the
economies – as is happening in other sectors such as scope for internationalisation of accountancy firms?
information and communication technology (ICT). The
growing importance of emerging economy firms and What are the market penetration prospects in closed or
business practices may also bring about cultural change in highly regulated environments such as China?
how accountancy firms in the G8i economies deliver services
to clients. What will be the level of competition from domestic firms in
emerging markets?

How can accounting firms secure and retain sufficient local
talent and expertise in these rapidly expanding markets?

i. The G8 member countries are Canada, France, Germany, Italy, Japan, UK,
US, and Russia.


11. Freedom of mobility for global labour

Since the 1960s in particular, cheap transport, globalisation of
business and a rise in the number of economic migrants have National employment legislation may make it increasingly
made labour mobility the widespread norm. Many argue that difficult to offer better terms to expatriate workers.
inward migration is and will remain a key driver of innovation
and growth. Nonetheless, questions are now arising about More restricted mobility could lead to major shifts in how
the future global sustainability of widespread migration in a global firms recruit and develop staff.
harsher and potentially more protectionist economic climate.
How will the rise and fall of labour mobility affect xenophobia
With global financial uncertainty and rising unemployment for or even nationalistic and extremist views on and the
nationals in many markets, there is, in some countries, protection of non-national workforces?
increasing pressure to protect local jobs from foreign
workers. Labour market migrants are not always finding a IMPACT TIMEFRAME
warm welcome for their skills and energies. Those working
remotely for national organisations may currently be more 4–5 years
protected but labour laws in some countries are resisting the
increased level of labour mobility even at the highest KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
skill levels. ACCOUNTANTS

The operating model of many global businesses relies on a Will global firms increasingly be expected to report and be
high degree of global labour mobility to allow talent to be evaluated on the geographic distribution and global mobility
deployed where it is most required. This constant global of their top talent?
rotation of talent also helps develop and sustain common
working practices, standards and culture within these How might accounting practices in global companies be
multinational firms. A shift from a globalised to nationalised affected if accounting staff cannot move freely
labour market could have severe implications for many firms. between countries?

60

12. Extent of mergers of international stock exchanges

Stock exchange mergers have been more common since
2007.18 The current wave of mergers between securities Mergers could bring potentially significant realignment of
exchanges was driven by opportunities arising from new financial centres.
technologies and regulatory reforms affecting derivative
instruments in European and American markets. For example, The influence of a given nation’s regulatory environment
Intercontinental Exchange purchased the Britain-based could spread via mergers of capital markets.
Climate Exchange PLC for US$597 million in 2010.19
The world’s capital markets could potentially consolidate into
Following the GFC, regulators began forcing derivatives three or four major world centres.
trading onto exchanges, and since the volume of derivatives
outstanding is a large multiple of world GDP, the revenues IMPACT TIMEFRAME
available became substantial. The other driver behind the
desire to merge has been the emergence of computerised 1–3 years
high-frequency trading. To meet traders’ demands for faster
and more complex deal matching, securities exchanges are KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
constantly required to invest large sums of capital to establish ACCOUNTANTS
and upgrade sophisticated information systems platforms.
Cost pressures and potential economies of scale are Could consolidation among capital markets lead to
contributing to the attractiveness of stock exchange mergers. standardised transaction accounting practices
across regions?
While the attractions are significant, major barriers exist to
driving through these mega-mergers. For example, in 2010, Is a standardised market the best way of inducing
Singapore Exchange Ltd agreed to a US$8.3 billion takeover transparency and visibility? How could such transparency
of Australia’s ASX Ltd in an attempt to create Asia’s fourth- benefit accountants?
largest stock exchange – this was subsequently rejected.
Might accountancy firms similarly cluster around a
Similarly, the proposed €6.8 billion tie-up between Deutsche consolidated global capital market structure (ie in three or
Börse and NYSE Euronext would have been the largest-ever four mega-centres)?
merger between international financial exchanges. The
merger has been blocked by the European Commission on
anti-competition grounds.21 Despite these merger attempts,
the drivers supporting further consolidation and integration
of the world’s capital markets remain intact.


13. Proportion of knowledge-creation activities as a share of the economy
at the national and global level

DESCRIPTION relatively small pool of highly skilled professionals. Hence,
while businesses in these sectors are attractive from a
Conventional wisdom in industrial policy has been that wealth-creation perspective, they do not help address the
innovation is a key driver of economic growth and growing challenge of achieving full employment within
development. The growth of the so-called ‘knowledge-based an economy.
industries’ has been seen as a critical enabler of innovation.
The knowledge economy can be broadly defined as a shift in IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
investment priorities towards the creation and exploitation of ACCOUNTANCY PROFESSION
knowledge and intangible assets such as R&D, software,
design, development and human and organisational capital. What technology infrastructures should businesses invest in
Nations across both the mature and emerging markets are so as to promote and enhance knowledge creation, sharing
putting the knowledge based industries at the heart of their and innovation for competitive advantages?
future plans and economic development strategies.
There may be a risk of creating an overqualified and
Technological development and globalisation are seen to act underused workforce with a rapid expansion of higher
as accelerators to the growth of the knowledge economy. education that is not matched by an increase in knowledge
Cheap and pervasive ICT and widespread education to work opportunities.
graduate level and beyond are also identified as defining
characteristics of a knowledge-based economy. Conversely, the skills developed in education may not be
those required in the growth of the knowledge economy.
The link between the knowledge economy and job creation is
an important one. A study from the Work Foundation reports As the effect of location is less important, opportunities and
that the number of knowledge workers in the UK and other challenges may emerge for business with the increasing
OECD countries has been growing for the past 25 years.22 The internationalisation of knowledge work.
study also indicates that the knowledge-intensive industries
have been major creators of new jobs in European economies IMPACT TIMEFRAME
for the past two decades. The Work Foundation’s report
showed that between 1979 and 2010, employment in 1–12 months
knowledge-intensive services in the UK increased by 93%.23 In
contrast, the total employment across the UK economy went KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
up by only 13% over the same period, indicating a sharp ACCOUNTANTS
increase in the total proportion employed in knowledge-
creation activities. Do current practices and standards for measuring and valuing
intangible assets match up to the needs of the
There are important geographic issues to consider here, as knowledge economy?
knowledge work can be highly mobile. A British example of
this problem is that markedly less private-sector knowledge What role does the profession have to play in ensuring that
work is being conducted outside the south east of the UK, there is effective government policy on knowledge
with many cities in the north of the country being left creation activities?
behind.24 Furthermore, the phenomenon known as the ‘brain
drain’ might have negative consequences for the economies How can accountants demonstrate ‘in traditional terms’ the
that made the original investment in the education of value of investing in knowledge-enhancing activities?
knowledge workers. ‘Brain drain’ is a risk that faces both
developing and developed countries.

One of the big concerns emerging around the knowledge-
based industries of tomorrow is that they are not creating the
same number of jobs as the declining sectors that they are
replacing. Many of these new information age and ‘biological
era’ businesses rely on a high degree of automation and a

62

14. Stability of national revenue bases

DESCRIPTION For countries with unstable economic bases, a priority is to
establish a diversified tax structure that reduces dependency
The stability of national revenue bases is considered a on any one source of revenue.
prerequisite for the economic well-being of countries as it
affects governments’ ability to provide public services. IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
Research from the University of Kentucky (2008) suggests that ACCOUNTANCY PROFESSION
the stability of a nation’s revenues depends on the level of
economic development and the robustness of its tax In countries with an unstable economic base and
systems.25 The challenge globally is to ensure that sufficiently underdeveloped tax systems, there is a risk that an undue tax
diverse revenue sources and robust collection mechanisms burden may be placed on the corporate sector, as it is easier
are in place to enable sustainable growth and development to assess and collect taxes from businesses than from other
of emerging economies. parts of the economy.

Generally, government revenues are derived from direct In countries with unstable revenue bases, there may be
taxes paid by households (mainly personal income tax) and increased risk of sudden and dramatic changes in revenue
corporations; and indirect taxes, social contributions and policy and taxation rates – particularly for foreign firms.
revenues from state owned assets and enterprises.26 In OECD
member countries, taxes other than social contributions have IMPACT TIMEFRAME
generally increased over the past decade and represent the
largest share of government revenues.27 For OECD member 1–12 months
states, grants and other income revenues such as fees and
sales of natural resources represent between 10% and 15% of KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
total revenues. By generating revenues from multiple sources, ACCOUNTANTS
governments can distribute the burden across different
groups of citizens and sectors of the economy. How should the relative stability of a nation’s revenue base be
factored into country risk assessments?
A major concern for many economies is the scale of the
so-called black or shadow economy. This comprises a largely What role can accountants play in crafting effective tax
cash-based, illegal, unlicensed and untaxed set of activities systems for developing countries to help ensure the stability
ranging from trade in counterfeit goods to narcotics, of revenue bases?
prostitution and human trafficking. The total value of illicit
trade in what is believed to be, in effect, the world’s fastest-
growing economy is now estimated at US$10 trillion globally
– making it the second largest global economy after the US.28
The OECD projects that, up to two-thirds of the world’s
workers will inhabit the shadow economy, or ‘System D’ii by
2020.29

ii. Robert Neuwirth in his article the ‘The Shadow Superpower’ <http://www.
foreignpolicy.com/articles/2011/10/28/black_market_global_economy>
explains that ‘System D is a slang phrase pirated from French-speaking Africa
and the Caribbean. The French have a word that they often use to describe
particularly effective and motivated people. They call them débrouillards. To
say a man is a débrouillard is to tell people how resourceful and ingenious he
is. The former French colonies have sculpted this word to their own social and
economic reality. They say that inventive, self-starting, entrepreneurial
merchants who are doing business on their own, without registering or being
regulated by the bureaucracy and, for the most part, without paying taxes, are
part of ‘l’economie de la débrouillardise’ or, sweetened for street use,
‘Systeme D’. This essentially translates as the ingenuity economy, the economy
of improvisation and self-reliance, the do-it-yourself, or DIY, economy.’


15. Manageability of national and international debt

The manageability of national and international debt is
important for macroeconomic stability, business confidence If fiscal consolidation fails to reduce debt to GDP ratios, the
and future economic development prospects. Levels of debt interest burden could rise to a point that affects
public debt also have important ramifications for citizen sovereign creditworthiness.
well-being, unemployment levels and the provision of social
welfare services. Globally, the economic outlook is In the countries with the highest debt to GDP ratios, how will
increasingly influenced by the views of policymakers, central budgetary consolidation and structural reforms affect
bankers and financial institutions on the sustainability of business and financial markets?
sovereign debt – particularly among Eurozone nations.
What might be the subsequent knock-on effects if public
The OECD reports that government debt as a percentage of debt issues overwhelm capital markets and suppress private
GDP in 2012 is 97% for the UK, 103.6% in the US, 102% in sector lending?
France, 128.1% in Italy and 181.2% in Greece.30 The total for all
OECD countries is 105% in 2012, and is predicted to rise to IMPACT TIMEFRAME
108% in 2013.31 Deutsche Bank’s own baseline scenario, which
assumes gradual fiscal consolidations, projects that public 1–12 months
debt in the developed market economies will rise to around
126% of GDP in 2020, up from roughly 104% in 2010.32 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
Deutsche Bank also warns that if policy action for managing ACCOUNTANTS
and reducing the levels of public debt is not successful, it
could feasibly rise to well above 150% of GDP in the OECD What mitigating strategies are being put in place to address
developed market economies by 2020.33 potential default by highly indebted countries?

Dealing with potentially rising levels of sovereign debt is likely What planning is in place to deal with the potential collapse
to dominate the global economic agenda for a decade or of the Eurozone in the event that one of its major
more. The challenges faced by highly indebted countries in economies defaults?
servicing increasingly high interest rates on their debt raise
the prospect of further expensive bailouts and a growing risk
of debt default. The concern is that default by a major player
such as Spain could lead to a ‘domino effect’, with markets
losing faith in other highly indebted nations – resulting in a
major global economic collapse or a serious downturn.

64

16. Level of investment required to maintain national physical infrastructure

Physical infrastructure forms the economic backbone of all
economies. The quality and resilience of a national Are the market conditions appropriate to attract private
infrastructure has a direct influence on the growth, finance to provide equity capital for large complex
competitiveness and attractiveness to inward investment of a infrastructure projects?
nation’s economy. The standard of economic infrastructure,
encompassing water, waste, transport, energy and What new opportunities arise for the private sector with a
communications, affects the quality of life for citizens as well possible expansion of public-private partnerships for
as the ability to meet objectives and commitments regarding infrastructure investment?
sustainability and reducing carbon emissions.
Will direct foreign government or private investment in
Globally, increased levels of investment will be required to domestic national infrastructure projects disadvantage
maintain and modernise existing infrastructure and meet the national firms?
new challenges arising from population growth, economic
development and sustainability challenges. The funding of IMPACT TIMEFRAME
major infrastructure investments is becoming a major
problem for governments in an uncertain global economy. To 1–12 months
put the requirement in context, the OECD estimates that total
cumulative world infrastructure investment requirements from KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
2011–30 will be in the region of US$200 trillion.34 ACCOUNTANTS

For the UK, data from HM Treasury shows that investment in What specifics in accounting and business expertise will be
UK infrastructure was £150 billion over the five-year period required to navigate the sometimes complex combinations of
between 2005 and 2010.35 The demand for future investment partnerships across sectors that increasingly will be used to
in the UK’s economic infrastructure is estimated to be in the finance infrastructure development?
range of £40 billion to £50 billion or more a year until 2030.
HM Treasury suggests this scale of investment required is How will the regulatory and policy frameworks of private
significantly above historic levels. procurement affect the operating context for the financing
and auditing of large long-term infrastructure investments?
A growing number of competing priorities for public funds, a
negative economic outlook and the credit crisis means that
governments are under pressure to be creative in raising the
money for infrastructure needs. Governments worldwide are
looking at a range of proven and innovative new financing
models and a portfolio of hybrid approaches. These are likely
to include a variable range of public–private partnerships
(PPP), private finance initiatives (PFI),36 flotations, community
funding models, total privatisations and
securitisation models.


17. Number and impact of micro-businesses on the overall health of
the economy

Micro-businesses are an increasingly important part of the
economy because they diversify national employment risk, Inuit’s The Future of Financial Services 2020 Report predicts
can be started relatively quickly and are often in key intense competition to serve smaller businesses – leading to
knowledge-based industry sectors. The standard EU lower margins.41
definition of a micro-business, and the one also accepted by
the UK government, is a company employing fewer than ten Inuit also suggests that the small business sector will continue
people and with a turnover of less than €2 million (£1.6 million; to expand driven by growth of personal (one person) and
US$2.4 million). Under this definition, 95% of UK companies micro- businesses (fewer than five employees). This will create
qualify as micro-businesses.37 opportunities for financial institutions that can serve these
small firms efficiently.
With high rates of structural unemployment in many OECD
economies, the argument that the number of micro- Increasingly, the internet is enabling micro-businesses to be
businesses will increase seems compelling. During 2010, global from day one – creating a different set of support
Americans started an average of 565,000 businesses a requirements than for those serving purely domestic markets.
month.38 Whether out of necessity, choice or strategy, the
confluence of technology and globalisation is enabling a IMPACT TIMEFRAME
whole new generation of global micro-business. Estimates
suggest that 40% of the US workforce could comprise 4–5 years
contract workers by 2020,39 highlighting the increasing allure
of starting a micro-business and hiring out your labour to a KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
range of firms. While the focus is typically on firms in the ACCOUNTANTS
knowledge economy, many micro-businesses are in sectors as
diverse as catering, construction and personal services. How can accountants provide a customised, value-adding
service for micro-businesses?
Analysis from Booz & Company predicts that, by 2020,
870 million women who have not previously participated in How can accountants adapt to potentially
the mainstream economy will gain employment or start their decreasing margins?
own business. Most of these are expected to come from
emerging economies, while roughly 42 million are forecast to What business model could be adopted to serve large
come from North America, Western Europe and Japan.40 The numbers of micro-business clients efficiently?
challenge for governments is creating the right policies,
support infrastructure and incentives to encourage the
growth of micro-businesses.

66

A2: Politics and law

18. Focus of global governance institutions

A network of governance institutions operating at the
international level largely took shape during the first half of Businesses will need to pay increasing attention to the
the 20th century to regulate economic, political and social policies and attitudes of a growing range of regional
dynamics and foster international collaboration. Questions groupings when looking at regional and country strategies
are now being raised over how well these institutions can and risk assessments.
govern and steer the emerging world order and respond to
the pace of global change. Western-dominated institutions that set global economic
standards could see control gradually transfer to the East, or
Institutions such as the World Bank, IMF, World Trade find themselves marginalised by entirely new
Organization (WTO) and the UN could face intensifying international organisations.
pressure to adapt their structures to the reality of the
changing world. These organisations were created in a Could Western countries accepting bailouts from newer
previous era when a different set of rules existed, set by the global institutions following Eastern economic standards be
West, and they still largely reflect a global order that existed forced to remodel their economies using Eastern
immediately after the Second World War. With economic economic practices?
power increasingly shifting eastwards, many parts of the
world now look to China, in particular, for direction Emphasis on national economic measurements based on
and support. intangible financial and monetary markets could lessen in
favour of tangible goods and services market measurements.
Global institutions are evolving at a relatively slow pace in
response to a changing global landscape, with more diverse The face and nature of globalisation could change, with China
centres of political and economic power and influence. An and India advancing (and possibly protecting) domestic
example of this is the continuing UN negotiations in respect knowledge industries, while helping them to export their
to granting a permanent Security Council seat to India. offerings globally.

The G20 grouping has become an increasingly prominent IMPACT TIMEFRAME
forum for bringing together leading developed and
developing nations. There is, however, still a belief among 10+ years
developing nations – such as the G77 grouping – in particular
that they need a stronger voice in the wider set of global KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
governance institutions. ACCOUNTANTS

While existing institutions are proving themselves slow or What would the implications be of greater influence of the
reluctant to change, the argument that the number of developing economies on global accounting standards?
micro-businesses will increase seems compelling and other
groupings are emerging and becoming more influential. For Could accounting talent follow the shift of global
example, the Shanghai Co-operation Organization, the Gulf governance eastwards?
Cooperation Council, and the Association of Southeast Asian
Nations (ASEAN) have all assumed increasing prominence in
the last decade. There is concern in some quarters that there
could be a dilution of value and influence of the Western
nations as developing economies seek to pursue their own
agendas in these newer regional groupings.

100 DRIVERS OF CHANGE FOR THE GLOBAL A2: POLITICS AND LAW 67

19. Rate of democratic transition

The rate of democratic transition can be important to
businesses for many reasons. Political changes may open up Firms may find public sector contracts being reviewed or
the economy, attract foreign investment, create business cancelled if regime change brings in a government that wants
opportunities and drive the growth of domestic segments to distance itself from the commercial dealings of its
but swift changes in power can be violent and disruptive – predecessor and start with a clean sheet.
causing economic downturns and depressing consumer and
business activity. Changes may also create political and Regime change may create fresh opportunities for
economic instability, or bring changes in legislation that are foreign business.
unfavourable to business, all of which contribute to an
uncertain business climate. If China entered a period of swift political reform that
reduced domestic growth, this could have global economic
The consequences of swift changes in political power have repercussions.
been demonstrated in Egypt since 2010. Within 12 months of
the initial social and political citizen protests, ex-President IMPACT TIMEFRAME
Mubarak was ousted in 2011 and replaced by a military
junta.42 For Egypt, high GDP growth rates are essential for 1–3 years
tackling the youth unemployment and poverty issues that
underpinned much of the original unrest. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
In practice, according to the IMF, the impact of the transition
on the Egyptian economy has been largely negative. Annual What risk assessments have been conducted to assess the
GDP growth in Egypt slowed to 1.8% during 2011, and is potential business and financial impact of regime change in
expected to average 1.5% in 2012. This contrasts with growth each core market?
rates of 7.2% in 2008, 4.6% in 2009 and 5.1% in 2010.43
Double‑digit inflation is also expected as a result of the Newly democratised nations may seek to impose higher
political instability.44 standards of financial transparency as part of electoral
promises for greater openness across the economy.
The question arises as to what the social and economic
impact might be of rapid political transition in China? Who How can accounting professionals prepare to take advantage
might be the resulting winners and losers in any new of the opportunities offered by rapid regime change?
governance model that emerges?

68

20. Level of international political volatility

The level of political volatility caused by popular uprisings or
the actions of hostile nations and terrorists groups can pose a Increasing tensions in the Middle East, such as over Iran’s
threat to both the physical and economic integrity of a state. disputed nuclear programme, could result in a spike in oil
Fluctuations in political volatility and concerns over terrorist prices and drastically increase business costs.
activity can affect inward investment and spending in a
country, as well as reducing the confidence of global Increasing political volatility could result in a negative cycle
financial markets. whereby businesses withdraw, worsening economic
conditions, and exacerbating popular unrest.
Statistics from the Center for Systemic Peace show a dramatic
60% decrease in the levels of both interstate and societal New opportunities could arise once stability returns to
warfare in 2011 compared with their peak in 1991.45 volatile states.
Nevertheless, during 2011 there were still 24 states directly
affected by 32 continuing wars, compared with 27 wars at the IMPACT TIMEFRAME
end of 2002. Of these 24 states, more than half (13) were
affected by protracted wars that have persisted for over ten 1–12 months
years.46
Increases in instability can destroy a state’s infrastructure and ACCOUNTANTS
deter businesses from operating and investing, thus seriously
affecting the state’s economic performance. For example, What role can accountants play in constructing resilience
consider the economic impact of the Arab Spring, when plans for firms to deal with potential political volatility in the
popular uprising led to the overthrow of the ruling powers of markets in which they operate?
Tunisia, Egypt, Yemen and Libya. Data from the political risk
consultancy Geopolicity indicates that the economic impact What resilience plans do large accountancy firms have in
of the unrest resulted in a combined cost of over US$55 billion place for their own operations in relation to potential
for the countries involved.47 These states saw an estimated political volatility?
US$20.6 billion wiped off their GDP and public finances were
eroded by a further US$35.3 billion as revenues slumped and
costs rose.48

The actions of states deemed ‘rogue’ can have a wider
regional and even global impact. Reuters highlighted serious
economic repercussions following increased tensions in the
Korean peninsula, in the aftermath of the North’s shelling of
the South in 2010. South Korea’s finances are reported to
have weakened amid chaos in regional stock markets that saw
the value of both the Korean won and Japanese yen tumble.49


21. Pace and extent of cultural globalisation

There is a growing set of voices challenging the notion that
cultural globalisation is an unstoppable force. To date, If governments respond in such a way to draw up legislation
globalisation in the economic and political spheres has been that better reflects cultural traditions, will this negatively
paralleled by cultural globalisation. This has seen the affect the convenience of free trade and present increasing
dissemination and adoption of predominantly Western cultural barriers to international actors?
values-based norms, especially in business. The dynamics of
cultural globalisation are tightly interwoven with economic Whether or not Europe as a whole is consolidating is
globalisation, which until now has flowed outwards from the questionable – the harmonisation of business values,
main economic powers of Europe and the US. Historically, however, presents both opportunities and risks. Similar
economic liberalisation and increased cooperation have harmonisation may be going on elsewhere.
generally assisted the process of inter-regional cultural
harmonisation. Talent flows may increasingly be influenced by shifting sites of
power within cultural globalisation.
In the coming decade, changes in the global economy could
affect the directional flow of cultural influence. The response IMPACT TIMEFRAME
to the GFC shows that some countries are moving back to
culturally protectionist attitudes. The goal is to distance and 1–3 years
protect themselves from the value systems and behaviours
that helped cause the collapse. In line with this, the changes KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
in the global economy also affect labour mobility and social ACCOUNTANTS
dynamics, which bring both opportunities and risks. Are
‘Western’ cultures influencing ‘Eastern’ cultures? Is there How will differentiation or further harmonisation affect global
equal respect for the other or does it present an intensifying accountancy educational programmes?
power play?
What barriers will cultural differentiation present for the
accountancy function in global enterprise?

What can global professional accountancy associations do to
help the profession make sense of cultural differentiation and
harmonisation in different parts of the world?

70

22. Governance and delivery of outsourced public services

The way in which public services are managed, funded,
supplied and consumed is changing fundamentally, in line Changing roles for governments in the specification,
with the financial struggles that nations face. In order to meet monitoring and delivery of services to the public will affect
higher demands with smaller public funds, it is likely that 21st regulatory procedures for businesses taking over these roles
century public services will look radically different in the – placing greater emphasis on the accountancy
future and from what was seen in the 20th century. profession function.

Public sector provision is being moved to the private sector, Tougher regulation and acceptance of international standards
particularly in the West, where, for example, the UK is could become the norm.
experiencing its biggest public service budget shortfall for a
generation. Public-private partnerships are becoming more Questions about where the UK will look, towards America or
attractive and, in some cases, necessary. Public services are Europe, will affect consensus over a more socially focused
looking to the private sector not just for money but also for business culture.
creativity and innovation in the design and delivery
of services. There is a need for a fair playing field so that business can
compete for government tenders with the third sector and
Questions are arising around governance and risk, eg how are public–private partnerships, and provide services with the
public governance agendas going to be defined and same supply costs as those organisations.
enforced with an increasing number of public services being
both specified and delivered by the private sector? What are There is a need for immaculate accounting practices in order
the potential risks where the private sector creates the rules to stimulate investor confidence and ensure the flow of funds
by which it operates, for example as it has done in towards efficient delivery of public services.
financial markets?
IMPACT TIMEFRAME
What are the opportunities for leveraging the efficiency,
creativity and knowledge that the private sector can offer? 4–5 years

ACCOUNTANTS

Accountants are now placed in a position that requires
balancing the bottom line on public service delivery – will a
new type of accounting emerge as a result?

Rewards for accountants in social enterprises or public-
private partnerships could lag behind those of the corporate
sector – what might this mean for talent attraction
and retention?


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Fast Future Study for ACCA - appendix - 100 Drivers of Change

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